Canadian Personal Finance Blog

Yes, even well planned out lives have a few glitches, just like financial planning (just remember to get back to it, and remember what went wrong the last time). Learn from your mistakes and you’ll be much smarter!

I set up the coffee maker, I put the water in, I put the coffee in, I set the timer for the coffee to start making while I was out walking my dog, HOWEVER, I forgot to slide the basket back in! Luckily my coffee maker didn’t dump the water all over my counter (and I was able to reset it and I am now enjoying my coffee).

Planning is important, mistakes happen, but we are all human, so don’t get too upset about it, just learn!

So the first and easiest principal of financial planning is to SPEND less than you MAKE. Notice, I am not charging you for this piece of advice, so please no notes saying, “Well D’UH!”, or such. This is so obvious, that maybe it gets obscured with all of the odd plans and pecodilos that we put together in our financial lives. Let’s look at this as the actual equation:

Incoming cash - Outgoing cash = SAVINGS (or Losses if negative)

You are probably thinking, I know that one! Really? Do you know how much money comes IN to your household? It’s not too hard to figure out, if you keep your pay stubs, but the rub is how do you figure out how much is going OUT of your household? Can you figure out where you are spending most of your money? Can you guess? My bet is you might be able to guess approximately, but I have also found that you might be wrong.

I am part of the “Quicken Cult” in that I track most of my expenditures and income in Quicken (no I don’t get any money from Intuit for saying this), and given that I use direct withdrawal to pay for most things, I actually have a pretty good view on what my family spends their money on (I’ll write another article on controlling spending, right now I am more worried about just bookkeeping).

Do you need to use Quicken to do this? No. You can use Microsoft Money, Excel, an accounting practice book, a spiral binder, or just keep your receipts for 2 or 3 months (or as long as you can stand keeping track of all of this). The important thing is that you are keeping track of things, you are watching (let’s not discuss the Heizenberg Principal just yet), and learning about your habits.

“I don’t need to track that, it’s only a coffee.”, think you? NO WAY! Go nuts for a short period and keep track of all that INCIDENTAL spending you have (if you are a smoker, you’ll have a heart attack on how much you spend on those). Let’s do a simple calculation here:

2 Stan Mikita’s Large Coffees per day * 5 days per week * 48 weeks * $1.40 = $672.00

The thing to remember this is AFTER TAX money too, could you use that much extra a year? If not, mail me a cheque for that amount (I sure as heck can).

The longer you do this “watching” of your spending the better a picture you can get about your spending HABITS. If you do it for a month, you’ll have a good snapshot, however, if you do it for 3 months, your picture is a bit clearer (and you are less likely to have “fudged” because you knew you were keeping track), and if you keep track for an entire YEAR, well then you can then plan for an entire year! WOW!!! That’s awesome.

Now that we have all this data, it is time to separate it into categories, the first is easy INCOMING and OUTGOING. Incoming is simple, that is your pay stub (but remember there is outgoing on there as well, taxes, cpp, ei, etc.,), outgoing is pretty much everything else. If you want you can use that big equation:

Incoming - Outgoing = Savings

and see where you stand (and whether it lines up with your bank statement), however, it might be better if you do a little more separation. In the OUTGOING, create subcategories for yourself, here are a few examples:

• * Groceries/Food
• * Transportation (Car/Bus/Moped expenses)
• * Taxes! (no, don’t add up GST unless you are a glutton for punishment)
• * Household
• * Utilities (if you live in an apartment or condo you might not need that)
• * Entertainment
• * Miscellaneous (i.e. all that is left)

OK, so we have done this and we now have a good view of where the money goes, and where it comes in, and hopefully at the end of it, you know why you have the savings (or debt) that you have in that time period. Is this the end of our quest? No way, this is only the beginning, all we have right now is raw data, next we need to use this data to make our financial plan.

Greetings and salutations

Well I have decided to give up some of my valuable TV watching time to put down on paper some of the tricks, traps, foibles and parables in the world of home finances (stuff like don’t spend more than you make, etc.,). Why should you read this? Well, I am NOT a financial planner or advisor and I do not try to pass myself off as one (I have the highest respect for anyone who wishes to use one), but I have learned a thing or two over the past 24 years of trying to keep my head above water (financially at least).

Now, before we go any further, I live in CANADA so before you ask lots of questions about 401K’s and why isn’t he writing his mortgage interest off on his taxes that is why (some of the ideas I will espouse are still applicable elsewhere, just be warned this is going to have a Canadian flavour to it.

Over the next few weeks I will be putting out (hopefully weekly) an essay on a topic that I have either just read about, just ran into (or just been run over by) or feel it’s an interesting thing to rant about (and a lot of my writing is gonna be rant-like, so my apologies for those accomplished writers or lovers of the Queen’s english).

Stay tuned!

Warning I am not a financial planner, and you should never take information you find (especially on the internet) as “the gospel” or “the only way to do it”, these are things that I have seen and learned about. If you think these ideas might work for you, READ ABOUT IT ELSEWHERE TOO! I will have an extensive lists of books and other sites where you can learn more (or learn about the opposite of what I am talking about). This information is supplied as a learning tool, that is all. The last thing I want someone to tell me is, “I lost my house because of something you told me to do!”. If you are unsure of your next steps consult a financial planner, your religious councillor (mulla, priest, monk, whatever), a parent or a trusted family member. The more you talk with other folks, the more you will learn and the more likely you are to succeed!